9 Traits of Successful Investors

I don't think anybody is born with the innate disposition for investing and in particular, equity investing. Luck may certainly be a factor in many instances. Success, however, mostly boils down to the hours dedicated to learning, failing, re-learning, and growing as an investor. Although patience and perseverance are key when on the journey to financial freedom, I believe the following are 9 traits of successful investors.

9 Traits of Successful Investors

1. Clearly Define and Articulate Your Goal

In my recent Avoid Making Poor Financial Decisions post I discussed the importance of setting a clearly defined goal. Short, medium and long-term objectives must also be set to improve the likelihood of achieving the clearly defined goal.

Far too often, people start investing without having any goals and objectives. People jump from one investment 'strategy' to another and often find that none of these 'strategies' work. Quite often, frustration and disillusionment set in and the investor ends up no further ahead.

Setting a clearly defined goal and having short, medium, and long-term objectives are critical but at the same time, the goal and objectives MUST be realistic. Unrealistic expectations are a recipe for disappointment.

2. Planning is Key

You can come up with an amazing goal and you can prioritize and set timeframes for your objectives but if you do not plan, you plan to fail.

The adage 'If You Don't Know Where You're Going, You'll Probably End Up Somewhere Else' certainly applies to investing.

Planning enables you to evaluate your existing skillset and ascertain what is currently lacking. Prioritize the areas for improvement, research how to fill the gaps, and seek sound guidance from credible sources.

3. Be Open to Learning

We are where we are in life because of who we learned from and the things we were taught. Sometimes we have had less than stellar teachers and role models. Other times, we need to look in the mirror to see the problem.

Becoming a successful investor is much like anything else. We need to be open-minded to continually learn from credible sources.

If you want to become a successful equity investor, learn from those who have achieved an impressive level of success. I typically access YouTube and listen to anything Warren Buffett and Charlie Munger (Berkshire Hathaway) have to offer.

In addition to listening to Buffett/Munger, the following is a brief list of other successful investors from whom we can learn.

  • John “Jack” Bogle - founder of The Vanguard Group.
  • Philip Fisher - the father of investing in growth stocks. He focused on investing for the long term.
  • Benjamin Graham - most widely known for being a teacher and mentor to Warren Buffett.
  • John Templeton - described as the ultimate bargain hunter.
  • Joel Greenblatt - hedge fund manager who heads Gotham Asset Management.
  • Howard Marks - co-founder and co-chairman of Oaktree Capital Management, the largest investor in distressed securities worldwide.

4. Seek Help When Needed

Planning and learning are extremely important. At some point, however, we will likely encounter a predicament in which we need to seek help despite all our planning and learning.

In my case, for example, I have spent years planning and learning to become a better equity investor. I am, however, 'paddling against the current' when it comes to understanding our tax code and structuring our finances to legally minimize our tax liability. This is why I need to engage the services of a tax accountant.

5. Understand the Risks

Risks are wide-ranging in nature. Far too often, investors invest without truly understanding the risks being assumed.

Warren Buffett has often said 'Keep all your eggs in one basket, but watch that basket closely.' Not everybody has his expertise so proper diversification is highly recommended. In essence, avoid having all your 'eggs in one basket'.

At the other extreme are investors who throw mud at the wall. I seriously question the quality of investment advice from someone with a portfolio of just a few hundred thousand dollars spread over 150+ companies. This describes the portfolio of one blogger who dispenses advice for a fee!

We are all unique and this is certainly pertinent when it comes to risk tolerance. I have witnessed investors miraculously change their risk tolerance when the value of an investment drops 20 - 30%. Meanwhile, these same investors stated they had no problems with their investment dropping in value by ~50% when they initiated the investment.

By the way, make sure you consider your partner's tolerance for risk in your investment decision-making process!

6. Control Your Emotions

Investor, know thyself!

Focus on things under our control that matter. This includes how we manage the behavioural impulses of emotional buying and selling that arise from closely monitoring equity market gyrations. Failure to manage behavioural impulses explains why so many investors pile into investments at market tops and sell at the bottoms.
Since an investor's psyche can overpower rational thinking during times of stress, we must reduce the risk of making investment decisions when experiencing emotions of greed or fear. Take a rational or realistic approach to invest in equities and tune out the noise. It is not uncommon to become entangled in media hype or fear so stop listening to the talking heads on the business news networks!
Control emotions. Dollar-cost average and diversify but do NOT over-diversify. Think long-term and stay the course when markets experience short-term volatility. Make fear your friend!

7. Avoid the Herd Mentality

Investors have put more money into stocks in the last 5 months than the previous 12 years combined. If this is not a warning sign to tread carefully when investing in equities then I don't know what is.

The phrase 'For fools rush in where angels fear to tread' in Alexander Pope's 1711 poem An Essay on Criticism, alludes to inexperienced or rash people attempting things that more experienced people avoid.

We are currently witnessing an equities market in which valuations, in general, are well above historical levels. Nevertheless, investors are piling into overvalued companies. Avoid the herd unless you want to be slaughtered.

8. Confidence and Humility

It is extremely difficult to be confident in an investment made based on rumour or gossip. Build confidence before initiating an investment. Learn about the industry, business, risks, and business outlook.

An equity investor who understands little about an investment is apt to frequently look at a company's share price during the day. The uninformed investor is more likely to press the 'panic' button simply based on stock price gyrations versus the underlying fundamentals of the business.

Confidence is a trait every successful investor should have. It is also, however, very important to have a healthy dose of humility. Not every investment will pan out as intended and when this happens, learn from the poor investment decision. We can learn much from poor investment decisions if we remain humble and do not blame others for errors we committed.

9. Persevere

We can do all the right things right and still achieve sub-standard results. Sometimes a minor strategy adjustment is all that is required. Other times, just keep doing what you are doing.

As noted earlier, more money has flooded into stocks in the last 5 months than in the previous 12 years combined. This has resulted in the unreasonable valuation of many companies. This is frustrating but is no reason to relax investment quality standards. Be patient if you are unable to identify reasonably valued high-quality companies. Do not invest just because everyone else is doing it. Something will occur at some point that will cause equity valuations to retrace to more attractive levels. You will persevere if you avoid the herd mentality.

9 Traits of Successful Investors - Final Thoughts

A successful investor invests in companies with a long-term investment time horizon. High-frequency trading or 'flavour of the day' investing is for gamblers.

Invest in a company with a business owner's mindset; business owners do not actively trade their business.

There will be 'speed bumps' so be prepared to ride them out. Having said this, if something fundamentally changes about the business in which you have invested and it is no longer an appropriate investment, then assess whether to exit the investment.

I wish you much success on your journey to financial freedom.

Thanks for reading!

Note: Please send any feedback, corrections, or questions to [email protected].

Disclaimer: I do not know your circumstances and am not providing individualized advice or recommendations. You should not make any investment decision without conducting your research and due diligence.

I wrote this article myself and it expresses my own opinions. I do not receive compensation for it and have no business relationship with the company mentioned in this article.